Warren Buffett And Elon Musk To Spark A Lithium Boom

The age of electrification across the transportation sector, the solar panel revolution, and Tesla’s battery gigafactory are igniting a battle for the cheapest battery. That will transform lithium into a boom-time mineral and the hottest commodity on the energy investor’s radar. It has been easy to take lithium for granted. This wonder mineral is the backbone of our everyday lives, popping up in everything from the glass in our windows to our mountains of electronics.

And while investors have long appreciated the steady rise in demand for this preferred mineral, the number of new applications continues to multiply. Smart phones, tablets, laptops, and other consumer electronics demand more lithium. But the largest driver for future lithium use will be in electric vehicles and home batteries for solar panels. That has lithium on the verge a boom for which supply can no longer be taken for granted.

Not since the shale boom have we seen a market transformation of such significance. Lithium has long been used for a variety of mundane purposes, and while the variety is spectacular—with applications in everything from glass, ceramics and greases to a line-up of industrial process—it has flown under the radar for most investors.

Supply has always largely managed to keep pace with steadily rising demand for lithium, and while the mineral is slated for growth with or without the ‘battery explosion’, Tesla’s gigafactory will spark a phenomenal spike in demand that will be no less exciting than the shale boom.

Not only will battery gigafactories change an already attractive lithium demand picture, but the suppliers themselves will change, making way for newer entrants—with more foresight and better technology–that will provide some of the best investment opportunities in the sector.

The lithium story cannot be told without first telling the Tesla story. Tesla Motors Inc (NASDAQ:TSLA) is developing a cheaper line of electric cars for release later this decade, and to achieve this it is constructing a $5-billion gigafactory to build 500,000 electric cars with the objective of lowering the cost of batteries by at least 30 percent.

Moreover, around one-quarter of the plant’s capacity may be for Tesla’s stationary storage business, which also sells backup batteries for homes, businesses and utilities—all fueled by lithium.

According to Tesla’s brainchild, Elon Musk, demand for stationary storage batteries has skyrocketed to the point that an expansion of the gigafactory may have to be considered before it is even built.

Musk is eyeing a “complete transformation of the entire energy infrastructure of the world to completely sustainable zero carbon,” and what he’s talking about here is lithium-battery production on a mind-blowing scale. Tesla is planning to produce more lithium-ion batteries in this factory than in the entire global marketplace combined.

Lithium—the lightest and most versatile of the metals—is the backbone of this exploding battery market. Lithium is already a key part of our everyday lives, but as batteries become the rule of the day in a new global energy picture, demand for lithium is soaring—and we are only at the beginning of this curve.

Battery manufacturers across the board are moving to lithium because it has the highest electric output per unit weight. And nowhere will this demand soar more than with the production of hybrid, plug-in hybrid and electric vehicles used by everyone from Toyota, Honda Motor Co Ltd (ADR) (NYSE:HMC) (TYO:7267), Nissan Motor Co., Ltd. (ADR) (OTCMKTS:NSANY) (TYO:7201), Renault, and Mitsubishi, to Ford Motor Company (NYSE:F), Chevrolet and GM. And of course Tesla Motors. Without lithium, there will be no gigafactory. In fact, this factory alone will need 15,000 tons of lithium carbonate a year just to get started.

We are on the edge of a profound competition over batteries as Tesla drives down lithium-ion battery production costs, lowers the benchmark and increases cost competition. The response will be new entrants to this market, and competing battery gigafactories.

Tesla’s competitors will make this one of the biggest battles of the century—a battle the entirely depends on lithium supply. Tesla’s biggest rival will likely be Build Your Dreams, the Chinese automaker backed by Warren Buffett. Already, BYD is building electric buses on American soil and has global gigafactory ambitions. By the end of the year, according to Reuters, BYD should have 10 GWh of battery production capacity, which it expects to increase to 34 GWh by 2020 with a new factory in Brazil—about the same capacity as Tesla’s.

Other Tesla rivals rushing to the battery production scene will be iPhone manufacturer Foxconn Technology Co., Ltd. (TPE:2354) (OTCMKTS:FXCOF) and LG Electronics Inc. (KRX:066570) (OTCMKTS:LGEAF) Chem, which is already one of the top three battery makers. Samsung Electronics Co., Ltd. (LON:BC94) is also hot on the trail, having just acquired Magna’s battery production division.

According to Credit Suisse, the lithium industry is “poised for significant volume growth,” which could lead to shortages of supply. As a result producers of lithium are set to enjoy significant earnings throughout the decade.

Even before Tesla’s gigafactory – and its rivals – entered the picture, global lithium consumption had doubled in the decade before 2012, driven largely by its use in lithium-ion batteries for cell phones and power tools. Then electric cars hit the scene in earnest, further boosting demand for lithium, while Tesla’s gigafactory is expected to use up as much as 17 percent of the existing lithium supply, according to Fortune magazine,